From: eric.allen.engle@justice.com
Sent: Saturday, October 26, 2002 8:29 AM
To: rule-comments@sec.gov
Subject: Law Prof, Q: FILE NUMBER S7-36-02 and S7-38-02
Dear Secretary Katz,
It is an honor to write you, and I know you are terribly busy. I am a
legal scholar at the University of Bremen. I would like to ask you to
consider seriously augmenting the SEC disclosure requirements of
companies regarding human rights. Such information is necessary for
investors to make fully informed decisions and should be available if
the market is to function smoothly.
Here is a form letter that some activists would like you to consider. I
see no reason either in economics or justice not to mandate disclosure
of such information and the potential that making this information
mandatory will deflect ill considered criticism.
Wishing you peace and prosperity,
Eric Engle,
University of Bremen
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Cc: Mr. Harvey L. Pitt, Chairman
Dear Chairman Pitt and Secretary Katz:
I am writing in support of the Securities and Exchange Commission's
recently proposed rules regarding proxy voting guidelines and vote
disclosure by mutual funds and investment advisers, File Numbers
S7-36-02 and S7-38-02. I congratulate the agency for instituting
meaningful disclosure that will surely bolster confidence in the equity
markets, and strongly support the recommendations set forth in these
proposed rules.
The rules are a major step forward in providing greater transparency to
investors whose proxy assets are held in mutual funds or entrusted to
investment advisers. With the proposed amendments, the SEC is making a
clear statement that proxy voting is a fiduciary duty and should be
exercised with the best interests of fund holders in mind. This is
consistent with the fiduciary standard set by the 1974 Employee
Retirement Income Security Act (ERISA), which already applies to private
pension plans.
As of last December, the mutual fund industry had assets totaling $7
trillion. Individual investors accounted for three-fourths of those
assets (ICI Mutual Fund Fact Book). Yet even as mutual funds hold
enormous influence over capital markets, and make decisions that can
significantly impact the fortunes of individual investors, most funds
have been reluctant to disclose their proxy voting records or the
principles that guide their voting of securities.
As owners of a corporation, shareholders have the right to participate
in major policies and management decisions. Proxy voting is a primary
forum through which management seeks investor affirmation of its
policies, and where shareowners can weigh in on important business
issues--including conflicts of interest and emerging political, social,
and regulatory issues facing the company. Yet mutual fund investors are
kept in the dark, with no information about how their fund is voting
proxies on important issues like executive pay, options packages,
auditor ratification, the election of directors, independent committees,
and social and environmental policies.
Mutual funds and advisers have enormous potential to shape corporate
governance and social policies at portfolio companies. Yet since the
1970s, fund participants and regulators have noted a tendency among
mutual funds and advisers to automatically vote with management,
wondering whether this tendency was influenced in part by a desire to
win profitable 401(k) and other business from companies where proxies
are being cast. It is time this potential conflict of interest was
eliminated.
Greater disclosure of proxy-voting policies and practices would pressure
fund managers and advisers to refrain from unilateral rubberstamping of
management's decisions, and would provide investors additional tools to
distinguish among funds in the market. Indeed, the proposed rules would
not only help investors identify those funds and advisers that carefully
examine proxy proposals before voting on them, but also those who
emphasize strong corporate governance or high standards of corporate
social responsibility. The amendments would also allow for fund owners
to be alerted when fund managers vote counter to their best interests,
and in essence, would pressure mutual funds and investment advisers to
take seriously their voting duties.
Some mutual funds argue that to post votes and policies would be
expensive and complicated. But there are already a number of mutual
funds and institutional investors doing this, and they track their votes
and post them publicly on their web sites, in order to keep costs down.
In 1999, Domini Social Investments, manager of the Domini Social Equity
Fund, became the first mutual fund in America to do this--along with the
California Public Employees Retirement System, the largest public
pension fund in the world. Since then, about three dozen mutual funds,
advisers, and other institutional investors have been posting their
votes or articulating detailed voting policies on their web sites, for
the array of resolutions presented at meetings each year.
I urge the SEC to require that disclosure of proxy votes and voting
guidelines be directly disclosed on mutual fund and investment advisers'
web sites, in addition to the SEC's web site. Furthermore, print copies
should be made available to those investors that do not have access to
the web, or for those small companies that meet the rule criteria, but
that do not have an Internet presence.
Additionally, I would like to see more specific guidance from the SEC on
what should be covered in a proxy voting policy or set of guidelines.
Hundreds of resolutions are filed by shareholders each year, on a range
of issues, and voting policies should reflect the diversity of concerns
coming to a vote. In fact, most fund companies-outside of socially
responsible funds-do not address voting policies for the myriad social
and environmental resolutions facing fund managers and advisers.
Engaged proxy voting can help foster executive accountability and social
responsibility on the part of many companies, and will help convince
corporations to be responsive on a range of issues, including accounting
practices, executive compensation, and environmental, human rights,
community, and labor concerns. There is mounting academic evidence that
progress on social, environmental, and corporate governance issues is
linked to positive, long-term corporate performance. When all mutual
funds and investment advisers reveal how they cast proxy votes, enabling
shareholders to know what is being done in their name, we can expect
corporate governance and accountability to substantially improve.
Thank you for the opportunity to comment on the proposed rules.
Sincerely,